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Companies Still Piling Up Cash

From the perspective of treasury and finance departments, the uncertainties just keep coming, whether it’s the European debt crisis, the fiscal cliff or new regulations. Those uncertainties are encouraging a significant portion of companies to continue to build their cash reserves, which were already at historically high levels.

A recent SunGard survey of treasury executives at more than 200 corporations worldwide shows that 37% increased their cash reserves over the last 12 months, while 40% said there was no material change in their cash holdings and 23% said they had decreased their cash reserves.

One key factor going into year-end is the anticipated expiration of unlimited FDIC coverage on non-interest-bearing bank accounts, a development that SunGard says is driving the increased interest in money-market funds. According to the survey, companies that use money market funds on average have about 50% of their cash invested in the funds, up from 39% in the 2011 survey.

“We’ve seen many of our customers gearing up for the potential expiration,” says Vince Tolve, vice president of SunGard’s brokerage business. “We’re definitely seeing an increase in the popularity of money-market funds from our customer base.”

“Many of the smarter corporates are making moves now, before the downward pressure on rates at year-end,” he adds. Short-term rates are often depressed at the end of the year as dealers clean up their books, Tolve says.

The expiration of the unlimited FDIC coverage was thrown into doubt last week as Senate Majority Leader Harry Reid, D-Nev., introduced legislation to extend the Transaction Account Guarantee program another two years. There’s also the possibility of more regulatory changes for money funds, but Tolve says such changes are “probably still some time out in the future.”

The SunGard survey also shows a pick-up in the use of money funds with a variable net asset value (VNAV). Only 9% of the companies surveyed use VNAV funds, but those companies hold 36% of their cash in VNAV funds, up from 4.5% last year.

Most of the companies using VNAV funds are based in Europe, where such funds are more common, Tolve says. “They’ve been around in Europe, so those customers are used to working with them.”

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